A Token to Regulate All Tokens? Messari to Raise ICO

The entrepreneur behind Messari shares his vision for how the crypto industry could self-regulate ICOs and forestall a regulatory apocalypse.

AccessTimeIconFeb 21, 2018 at 1:01 p.m. UTC
Updated Sep 13, 2021 at 7:35 a.m. UTC
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Some envision an apocalyptic battle between cryptocurrencies and regulators, others foresee blockchain innovations becoming too powerful to be tamed.

But Ryan Selkis, widely known by his Twitter moniker TwoBitIdiot, isn't devoted to either one of these futures. The founder of Messari, a nascent crypto version of CrunchBase, is more measured – thinking there's no reason to panic, but that this isn't a time for complacency, either.

To that end, he announced his solution Tuesday – a crypto token that will seek to protect the industry by pushing it toward self-regulation.

But if a year or more of furiously critiquing ICO practices makes it seem like Selkis is against tokenized crowdfunding, he's not; in fact, his criticism is directed at making sure a good idea isn't ruined by bad behavior.

While self-regulation has been a hot topic in the broader crypto industry for some time, it has yet to see a whole lot of pick-up (besides a very recent development in Japan). But, according to Selkis, regulators have been consistent in their approach toward the nascent industry.

After all, there's no doubt specific regulators like the Securities and Exchange Commission (SEC) have taken a keener interest in the crypto token market as of late. And that's why Selkis believes now is the time for his concept to shine.

Selkis told CoinDesk:

"If we do something like this, it will certainly be this year, because I think the window is closing on the industry in terms of how long we have to essentially self-regulate without top-down enforcement actions really putting a freeze on token activity."

A new orthodoxy

Stepping back, Selkis first announced Messari in October, at the time calling the project an open-source EDGAR (the public SEC database for securities) for tokens.

In today's announcement, he furthered that concept, describing how other self-regulatory bodies have evolved over time to become significant organizations – citing the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

But precedent aside, it remains unclear just how to get the crypto industry, which is decentralized, global and so inherently hard to pin down, to come together over the issue.

In the announcement, Selkis wrote:

"I’m confident we could get a decent amount of the way toward self-regulation based on social pressure. But until recently, I didn't really think there were good enforcement mechanisms or financial incentives to make any self-regulatory efforts reliable."

Looking ahead, he's convinced he found that mechanism through a decentralized list attached to an agreed-upon set of standards, all of which is governed by a token.

The model is called a "token-curated registry," and Selkis acknowledges the idea will only work with broad buy-in crypto's leading luminaries.

Evangelizing disciples

As such, Selkis, who noted that everything about the idea is still "subject to change," outlined his vision for the token in today's blog post.

A token-curated registry is essentially a list vetted by people that hold a token to allow them to control who gets on the list. On Messari's particular list would be compliant projects funded by ICOs.

Selkis expects the vetted voters to be key stakeholders in the industry – the entities (such as hedge funds, exchanges and advisers) that regulators would hold accountable if investor abuse became widespread.

"As stakeholders, I think there would be intrinsic benefits to owning a stake in a system that greenlights token offerings as abiding by certain minimal levels of transparency and standards," he said.

To facilitate compliance, token projects would have to make certain disclosures (currently being developed), such as the critical facts about the token, like the vesting schedule for different groups, commitments to auditing and the token's economics would need to be detailed on the site.

Selkis sees a future where Messari indirectly reinforces good behavior since stakeholders would become reluctant to work with companies that fail to get on the Messari list.

While there's a number of companies that gather smaller data sets about token projects today, most of those services are pay-for-access businesses, whereas Messari would be open.

"Siloing data and information in this industry is going to be a losing business model," said Selkis.

Awaiting scripture

Still, those who have been following the Messari project may have noticed we're still at the idea stage. In fact, the announcement is short on specifics.

There's no hard cap, no soft cap and no vesting terms. We could even imagine a scenario in which Messari used a unique token, like an ERC-721, but it could also be the simple ERC-20. None of that has been finalized.

In fact, Selkis isn't even ready to say what kind of legal structure he expects to employ.

This is part of the process. Most projects have to build technology. Besides that, Selkis has to build something much more delicate: buy in.

"There's still a lot of research and development to do this right," Selkis said.

But the pressure Selkis feels is not from the regulatory community, here or abroad.

"I think they've recognized the challenges and limitations in coming up with top-down regulations," he said, pointing to the recent testimony by the Commodities Futures Trading Commission (CFTC), where the agency's chief stated that rule-making should "do no harm."

Selkis added, "I think they are probably supportive of new technology, provided they are abiding by the spirit of the existing securities and commodities law."

The pressure he feels, then, is in bringing a truly ecumenical set of voices to the table, a collective powerful enough that new issuers really have to listen, unified around one plan. He explained his deliberate process by saying:

"We're just not in a rush, because I think this is a one-shot deal to get consensus around."

Disclosure: Ryan Selkis was formerly managing director of CoinDesk.

House of worship stained glass image via Shutterstock


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